Forg­ing Firms in Fo­cus Again as US De­mand for Heavy Trucks Picks Up

The Economic Times - - Smart - Mar­ket In­tel­li­gence

ET In­tel­li­gence Group: Ex­por­to­ri­ented forg­ing com­pa­nies such as Bharat Forge, Ramkr­ishna Forg­ings and MM Forg­ings are back on in­vestors’ radar, thanks to signs of re­cov­ery in the heavy truck mar­ket in North Amer­ica. Ex­ports to North Amer­ica con­sti­tute nearly 25-40% of the to­tal sales of these com­pa­nies.

Re­flect­ing the mood, stocks of forg­ing com­pa­nies have surged 8-15% in the past one month as or­ders for heavytruck­stotheUShavepickedup.

The or­der in­flows of Class 8 or­der — an in­di­ca­tor of heavy truck sales to North Amer­ica — gained 20% YoY to 21,600 units in Jan­uary. This is the sec­ond time in the past two years that or­der in­flows of such trucks have posted a growth.

Ac­cord­ing to Freight Trans­porta­tion Re­search, US fleet op­er­a­tors are more con­fi­dent about the mar­ket con­di­tions now than they were four months back and fleet rates have started im­prov­ing since De­cem­ber. Also, Pac­car, a US com­mer­cial ve­hi­cle maker, has in­di­cated that deal­ers are turn­ing pos­i­tive and ex­pect­ing a bet­ter 2017. Bharat Forge is ex­pected to gain the most among the forg­ing com­pa­nies due to the sheer size of its op­er­a­tions. It is ex­pected to post 5% and 15% growthinFY18andFY19,re­spec­tively. The man­age­ment of Ramkr­ishna Forg­ings ap­pears to be the first to sense an im­prove­ment. In the Septem­ber quar­ter earn­ings con­call, its man­age­ment said that they ex­pect ex­port vol­umes to re­cover. Chen­nai-based MM Forg­ings got nearly 25% of the to­tal revenue from the US in the last fis­cal. It is ramp­ing up its ca­pac­ity to 65,000 met­ric tonnes by the end of this fis­cal com­pared with 53,000 MT, cur­rently.

Im­po­si­tion of bor­der tax in the US could be a near-term risk. How­ever, due to the na­ture of the US forg­ing in­dus­try, full sub­sti­tu­tion may not be pos­si­ble. Hence, some im­pact could be shared by the ve­hi­cle mak­ers. Bharat Forge may be the least im­pacted as it re­cently ac­quired Walker Forge and this fa­cil­ity may be used for lo­cal pro­duc­tion.

Bharat Forge is ex­pected to gain the most due to the sheer size of its op­er­a­tions

HIGHS & LOWS

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